What’s claims made insurance?

One of the problems with professional insurance is jargon. It’s everywhere.

Take professional indemnity insurance, for example. Among its many important features is the fact it’s a claims-made policy rather than a claims-occurring policy.

Unfamiliar phrases, certainly. But to understand these words is to understand a fundamental part of your cover.

What does 'claims made' mean?

For a negligence claim against you to be covered, your professional indemnity insurance policy has to be in force at two points: when you did the work and when you report the claim.

Professional indemnity insurance is mostly concerned with work you’ve already done, as that’s where the majority of claims come from. You can't be sued for a mistake you haven't made yet - and it can take months or even years for latent problems to become apparent.

This brings us to the really important bit: your cover exists only for as long as your policy does.

Let’s say you cancel your cover as soon as you finish a contract. If there’s a claim against you, say, two weeks after that, it won’t be covered – even if it relates to work you did when the policy was in place.

That’s an eyebrow-raiser for sure, and a common misunderstanding. It’s easy to assume that because you bought and paid for insurance at the time you were working, its cover still applies when it’s cancelled. That’s not the case.

If you want to make sure you’re still covered, you need to keep your insurance running. This is often a tricky one to weigh up – it could mean paying for cover years after completing your work, or after you’ve ceased trading/retired.

What's the difference between 'claims made' and 'claims occurring' insurance?

Public liability insurance and employers’ liability insurance are both claims-occurring policies and work slightly differently from professional indemnity insurance.

As with professional indemnity, for a claim under one of these policies to be covered, the insurance has to be in force at the time of the incident. Simple enough.

However, it’s the insurer at the time of the incident that covers it, regardless of when the claim is made.

The obvious difference here is that, unlike claims-made policies, claims-occurring policies still cover you even after your policy is cancelled.

Clear as...

So there we go. Hopefully, that's made things a little clearer. We haven’t covered everything here, and we still need to talk about other relevant things like retroactive cover and run-off cover.

But, if you've got nothing better to do, at least you can impress colleagues with your new-found insurance knowledge.

Image used under license from Shutterstock.